The Anatomy of Sustainability

49 Pages Posted: 11 May 2020 Last revised: 8 Oct 2020

See all articles by Ola Mahmoud

Ola Mahmoud

University of Basel; University of California, Berkeley

Julia Meyer

University of Zurich - Department of Banking and Finance, CSP

Date Written: May 1, 2020


We present evidence that sustainability is inextricably linked with market-implied uncertainty and sentiment. We derive an econometric decomposition of sustainability ratings yielding three orthogonal components capturing uncertainty, investor sentiment, and an idiosyncratic sustainability factor. Examining the shock of the COVID-19 pandemic to the US stock market in light of these explanatory factors, we show that the perceived immunity of sustainable stocks during the crash is essentially driven through the uncertainty channel. Once controlling for uncertainty, sentiment and firm fundamentals, the positive relationship between idiosyncratic sustainability and resilience persists, albeit weakly.

Keywords: sustainable equity, ESG ratings, market crash, uncertainty, investor sentiment, ESG factor

JEL Classification: G01, G14, G41, C33, D81, D91

Suggested Citation

Mahmoud, Ola and Meyer, Julia, The Anatomy of Sustainability (May 1, 2020). Available at SSRN: or

Ola Mahmoud (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003

University of California, Berkeley ( email )

Center for Risk Management Research
Evans Hall
Berkeley, CA 94720
United States

Julia Meyer

University of Zurich - Department of Banking and Finance, CSP ( email )

Plattenstrasse 30/32
Zürich, 8032

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